Major U.S. law firms have a long and disappointing history of overbilling clients, so it is not surprising that a recent audit of the federal Troubled Asset Relief Program (TARP) found that even the Treasury Department is shelling out too much money to law firms.
Unsurprisingly, the U.S. taxpayer is ultimately responsible for paying the expenses.
Signed into law in 2008 by George W. Bush as a part of the Emergency Economic Stabilization Act, TARP is meant to promote economic stability by“enabl[ing] the Department of the Treasury to purchase or insure troubled assets.” Cristy Romero, TARP’s Special Inspector General (SIGTARP) and former financial restructuring counsel for Akin Gump Hauer & Feld, recently compiled and released a performance audit report that investigates and analyzes fees paid by Office of Financial Stability (OFS) under TARP to five law firms, chief among them Venable LLP. The audit, the text of which can be found here, claims that nearly $700,000 of the $1 million paid to Venable by TARP is "questionable, the result of spurious and ‘vague’ billing practices."
"Vague" billing techniques include block billing, a practice that allows lawyers and legal professionals to charge their clients for services without providing a detailed description of services rendered. Not only is the practice of block billing largely considered unethical, it also gets attorneys into their own legal trouble. One recent example is the case of Duane Morris LLP, a law firm sued for $100 million for legal malpractice; the malpractice charge included block billing clients for $2.6 million “without detailing the nature or reason for the work.”
The audit was originally requested by Senator Tom Coburn in an attempt to hold the Treasury—in particular, the Office of Financial Stability (OFS) and TARP—accountable for "wasteful spending" of taxpayer money. On his website, Coburn publicizes this wasteful spending, saying that the OFS “has spent tens of millions of taxpayer dollars on outside legal fees to assist its efforts.” Venable was only one of five law firms whose charges were under scrutiny; the audit, which began in May 2010 and ended in March 2011, found that as of December 31, 2010, the Treasury had paid a whopping $27 million in legal fees to these five firms.
Although seemingly predatory and greedy practices such as block billing are, on the surface, to blame for the unnecessary expenses incurred by the U.S. Treasury, the audit overseen by Romero is above all else a "performance" audit, conducted so as to ensure that the federal government is responsibly doling out taxpayers’ dollars. Ultimately, the federal government is responsible for being responsible—Romero recognizes this in the audit, stating
If OFS had included specific, detailed provisions regarding billing methods and allowable services and costs in its contract with Venable, or had more effective internal procedures for reviewing legal fee bills, the billing methods SIGTARP observed should not have been allowed.
At least some government officials, such as Romero and Coburn, have held OFS accountable for their lack of oversight.
Especially in light of the federal budget woes, it is difficult to believe a government agency could be throwing away millions. Even in a booming, healthy economic environment, this careless is condemnable--but when countless programs like Medicare and Medicaid are up for restructuring, cuts, or complete annihilation, this financial haphazardness could have a deep and lasting impact on the nation's most vulnerable populations.